William John Market Report 31-07-21
Major players in commodity markets bounce back from the pandemic on strong earnings - William John assesses.
Oil, Natural Gas, Hydrocarbons, Commodities, Markets, William John

William John Market Report 31-07-21

William John Market Report 31-07-21

Category: Reports

Following their Big Tech counterparts with earnings releases, the international commodities sector has bounced back from the pandemic in style, on the back of a resurgence in a variety of consumer demands for hydrocarbons and raw materials. 

Looking at Royal Dutch Shell (“Shell”), the company announced on 28/07 that it was raising its quarterly dividend (which is announced in a dollar denomination before pound sterling and euros) to 24 cents per share, a 38% rise relative to its Q1 dividend of 17.35 cents per share. 

Shell’s dividend policy is a signal to investors that oil and hydrocarbon markets are bouncing back from a depressing time for hydrocarbon businesses, having slashed its dividend from 47 cents per share in Q4 2019 to 16 cents per share in Q1 2020 – the first Shell dividend cut since World War II, illustrating the truly “wartime” impact COVID-19 has had in particular markets. Additionally, Shell has launched a $2 billion share buyback scheme, taking advantage of high oil and gas prices to attract investors back to oil & gas:

Source: William John Analytics, Markets Insider (prices at close)

With the spot prices quoted per barrel and per million BTU (British Thermal Units), the Brent Crude price per barrel is the international benchmark for crude oil market prices and the Henry Hub Natural Gas price per million BTU is the most liquid natural gas product priced on mercantile exchanges. Both are accurate proxies for the state of the market and both markets are bouncing back strongly based on recent data. 

Aside from hydrocarbons, Anglo American, a British mining company dealing in diamonds, copper, nickel, iron ore, metallurgical & thermal coal as well as being the world’s largest producer of platinum, posted its best half year profits in its 104-year history. It reported pre-tax profits of $10.1 billion for the six months to June, up from $1.7 billion in the same period in 2020. On these figures, Anglo American has also announced it will return $4.1 billion to shareholders. ArcelorMittal (the world’s largest steelmaker) and Rio Tinto (An Anglo-Australian mining company primarily dealing in iron ore, copper, uranium, gold and diamonds) both reported similar successes, recording their highest profits since 2008 and half year profits totalling their entire profit in 2020 respectively. 

Their successes have been fuelled by increasing consumer demand for raw materials as economies reopen. Taking the price of iron ore, which all three aforementioned businesses deal in, over the past 6 months:

Source: William John Analytics, Markets Insider (prices at close)

Clearly, skyrocketing prices have fuelled huge gains in revenues and profits. In the raw materials and hydrocarbon businesses – it’s set to be a profitable summer (COVID providing). 

It must be taken into consideration though, that supply chain bottlenecks and emissions crackdowns by major governments – including China (the world’s greatest polluter) – are likely to make these raw materials even more expensive and these higher prices are likely to be passed on to retail manufacturers and respective retail markets. Questions over inflation and the sustainability of the growth in consumer markets are at the forefront of investor’s minds – with primary and secondary industries looking so profitable – the question is, will these price surges threaten the margins in the retail economy, boost inflation and derail the economic progress of businesses as costs rise? Only time will tell. 

Any opinions expressed in these documents are those of William John and are provided for information only. E&OE.